Monday, October 01, 2007

Power shift

Time-of-day (or real-time) electricity pricing may soon become a reality in Massachusetts. Retail electric providers are quickly coming to the realization that enlisting cooperation from ratepayers to reduce their energy use during peak demand periods makes good business sense for them. Of course, the way to gain that cooperation is to make it economically attractive for ratepayers.

"Power-shifting" appears to be one way of achieving that goal. It can save consumers a considerable amount of money while helping electricity providers avoid the need of adding expensive new generation capacity. (GW)

The five-member Winslow family is big into power shifting, a skill that has saved them money and could soon be important to the region's energy future.

The Winslows run their washer, dryer, and dishwasher during the evening and keep their pool heater on a timer that operates only at night and on weekends. They are participating in a voluntary NStar program that charges customers more for the delivery of electricity during peak-demand periods and less for power delivered during off-peak periods such as evenings and weekends. It's very similar to the way long-distance telephone companies used to charge for minutes - higher rates during the day when phone traffic was high and lower rates at nights and on weekends.

Over the past year, the Norfolk family has used just over 20,000 kilowatt-hours of electricity, of which 85 percent was consumed during off-peak hours. Their power-shifting saved them $348 and would have saved them even more if the pool timer hadn't been broken for part of the summer.

"It's been easy to do," said Daniel B. Winslow, who signed the family up for the program. "The off-peak time tends to be our leisure time, nights and weekends."

State and utility officials are eager to see whether the experience of the Winslows can be duplicated on a much broader scale. Right now, most power customers are charged a single rate for electricity no matter when they use it. But the wholesale prices for power vary dramatically during the course of a day, with prices typically much higher when demand is the highest. By reducing the demand for electricity during peak periods, the need for new power plants and expensive peak power could be reduced or eliminated.

"What we're trying to do is get prices to reflect costs," said Mike Oldak, senior director for state competitiveness and regulation at Edison Electric Institute, which represents the electric power industry. "At the peak of the day, costs are higher, and if you can shift use of that power to an off-peak period, we'll save money and you'll save money."

NStar's current time-of-day pricing plan applies only to the utility's delivery charges, and not to the larger power portion of a customer's bill. As a result, savings are limited. A typical customer using 500 kilowatt-hours a month would have to use nearly 80 percent of his power off-peak just to break even under the current time-of-day pricing plan. Only 160 of NStar's 800,000 residential customers currently participate.

But as part of a July settlement with Attorney General Martha Coakley, NStar agreed to develop a pilot dynamic pricing program that would charge participating customers rates that vary by time of day for both the power and delivery portions of the bill. The program, still months from launching, would generate savings for most customers who shift usage to off-peak hours.

"Time-of-use pricing and meters have the potential to give consumers more control over their energy use by using price signals to change usage patterns," Coakley said in a statement. "Consumers may both save money on their bills and, if enough use is curtailed during peak demand, offer relief to our power grid at the most critical times."

NStar spokeswoman Caroline Allen said the utility is reviewing many options for the pilot program. For example, what kind of meters are needed? They must be capable of tracking how much electricity a customer is using and when it is being used. Should they also allow the utility, subject to a customer's approval, to turn down a thermostat, shut off appliances, or deliver messages about upcoming price spikes?

What about the cost? Allen said a standard electric meter costs between $50 to $75, but more advanced units can cost up to 15 times more. Under the pilot program, participating customers must help pay for the cost of the new meters.

Allen said NStar also has to structure a power-supply deal with the generators from whom it purchases electricity and decide which customers should participate. She said customers with above-average electricity usage would probably be targeted.

The other big unknown is whether time-of-use pricing will prompt consumers to not only shift their power usage but to use less. Other pilot programs have indicated significant conservation savings are possible.

"We hope it will answer a lot of questions," Allen said.

According to ISO New England Inc., which oversees the region's power system, the six states currently have the capacity to generate as much as 32,000 megawatts of electricity. Demand peaks in the summer and hit a record high of 28,130 megawatts on Aug. 2, 2006.

Average electricity demand declined 3 percent last year compared with the year before, but demand at peak times increased 4.6 percent. Over the summer months, when electricity consumption is the highest, peak demand has increased 20 percent over the last 10 years and is expected to increase another 15 percent over the next decade.

The increase in peak power demand is costly for consumers, since the power plants that provide peak power are rarely used yet expensive to maintain and operate.

Utilities have been experimenting off and on with time-of-use pricing for decades, but the practice is being studied more closely now with electricity supply and demand precariously balanced. Oldak, of the Edison Electric Institute, estimates utilities are currently running as many as 40 time-of-use pilot programs around the country.

Winslow said his chief concern about time-of-use pricing was that he and his wife would have to become strict power disciplinarians, forbidding the use of electricity during peak periods.

Instead of paying the standard delivery charge of 6.2 cents per kilowatt hour all day long, the Winslows currently pay 13.95 cents from 9 a.m. to 6 p.m. weekdays and 3.4 cents from 6:01 p.m. to 8:59 a.m. on weekdays and all day weekends. Because they require a special meter, their fixed monthly customer charge is $9.99 instead of the standard $6.43.

But Winslow said his wife and three children have adapted to the pricing system without any major disruption to their lifestyle and now can't wait for the new pilot program, which should increase their savings dramatically.

"When we were considering doing this, we were concerned about how far we would have to go to change our habits," he said. "But our experience has been not at all. It's been very easy."